Must the landlord pay interest on the deposit in Germany?

What the Law Says

German law strictly regulates how landlords must handle rental security deposits — including how they are paid, held, and whether interest applies.

Under § 551 of the German Civil Code (BGB), when a tenant provides a cash security deposit, the landlord is legally required to place that money in a separate, interest-bearing account. The law does not allow the landlord to keep the deposit in a regular checking account or use it for personal purposes.

The deposit must be invested at the 'usual interest rate for savings accounts with a three-month notice period' (Spareinlagen mit dreimonatiger Kündigungsfrist). This is a statutory benchmark — not a fixed percentage — but typically corresponds to the average market rate offered by German banks for such accounts at the time.

All interest earned belongs exclusively to the tenant and must be added to the deposit balance. The landlord may not retain any portion of it. Furthermore, the deposit and its interest must be kept completely separate from the landlord’s personal assets — meaning it cannot be commingled or used as collateral.

Any clause in the lease attempting to waive these obligations — for example, stating 'no interest will be paid' — is automatically invalid under § 551(4).

Statutory Text

Der Vermieter hat eine ihm als Sicherheit überlassene Geldsumme bei einem Kreditinstitut zu dem für Spareinlagen mit dreimonatiger Kündigungsfrist üblichen Zinssatz anzulegen. Die Vertragsparteien können eine andere Anlageform vereinbaren. In beiden Fällen muss die Anlage vom Vermögen des Vermieters getrennt erfolgen und stehen die Erträge dem Mieter zu. Sie sind der Sicherheit hinzuzufügen.

— BGB § 551(3) — German Civil Code

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